China’s Subsidized Electric Car Industry Is Rife With Fraud

China’s electric car industry has been rocked by allegations of fraud due to companies taking advantage of corruption and lax oversight to cash in lucrative government subsidies.

Electric car companies reportedly “exaggerated deliveries of electrified vehicles, sold the vehicles built with substandard parts, and faked vehicle deliveries by shipping cars to shell companies rather than consumers,” according to Automotive News China.

Chinese officials are following up on investigative reports by news outlets that found “some companies would produce poor-quality electric cars, and then secretly set up a car rental agency that buys all the cars in exchange for millions of yuan in subsidies,” according to China Daily.

“These cars will eventually end up being dumped in a warehouse,” the paper reported. “In December 2015, sales of new energy commercial vehicles reached 63,525 units, around double the figure on a year-on-year basis.”

Chinese companies can get between $15,000 and $16,000 in subsidies for every electric car made — which is much higher than the actual cost of making the car. These subsidies are handed out by central government and local officials who are looking to promote electric cars as a solution to the major pollution problems in China’s cities.

“The reason for the swindles is a lack of regulation and supervision,” Jia Xinguang, a senior analyst at the China Automobile Dealers Association, told China Daily.

“One possible solution is to collect the data on one platform, including data on the battery, engine and mileage,” Jia said. “Investment in research and development is very high in the new energy vehicle industry. The Easy and large profits made by dishonest people, if not checked, are going to have a very destructive effect on honest manufacturers.”

Government officials are now looking into the matter after the media exposed the shady practices. Some officials, however, already suspected electric car companies were swindling the government for subsidies.